Lido DAO Faces Class-Action Lawsuit Over LDO Token Alleged to be Unregistered Security

Lido DAO, a decentralized autonomous organization governing the liquid staking protocol Lido, is currently embroiled in a class-action lawsuit. The lawsuit, filed by former LDO holder Andrew Samuels, alleges that Lido's LDO token is an unregistered security and holds Lido DAO liable for the financial losses incurred due to the token's price decline.

Lido is a prominent protocol in the blockchain ecosystem, enabling users to stake their Ether (ETH) and receive staking rewards. Users get a derivative token called stETH, which can be utilized in various applications. The Lido DAO, comprising LDO token holders, is responsible for governance decisions within this protocol. Lido stands out in the DeFi space, having locked more than $19 billion worth of cryptocurrency in its contracts, marking it as the largest in terms of total value locked for any liquid staking derivative​​​​​​​​​​.

Details of the Lawsuit

The class-action lawsuit was filed in a San Francisco United States District Court on December 17, 2023. Andrew Samuels, the plaintiff, is a resident of Solano County, California. He asserts that the LDO token, governed by Lido DAO, is an unregistered security according to the U.S. Securities and Exchange Commission's criteria. The lawsuit includes defendants such as Lido DAO, AH Capital Management LLC, Paradigm Operations LP, Dragonfly Digital Management LLC, and Robot Ventures LP. These entities are alleged to hold significant control over LDO tokens, limiting the influence of regular investors on governance issues​​​​​​.

The Core Allegation

Samuels' main contention is that the Lido DAO began as a general partnership led by institutional investors, later transitioning to public token sales for potential exit opportunities. The lawsuit alleges that centralized exchanges were persuaded to list LDO tokens, leading to their purchase by Samuels and other investors. Following the listing, the token's price fell, leading to significant losses for these investors. The complaint leverages a statement from SEC Chair Gary Gensler, suggesting that the LDO token is a security because it involves a group between the tokens and investors, with the public expecting profits from this group's actions​​​​​​.

The case, filed under case number 4:2023cv06492, is being presided over by Judge Donna M. Ryu in the US District Court for the Northern District of California. It focuses on allegations of securities fraud under 15 U.S.C. § 77. The outcome of this lawsuit could have significant implications for the Lido DAO, LDO token holders, and the broader DeFi and blockchain community, particularly regarding the classification and regulation of tokens as securities​​.